Customer Relationship Management A Databased Approach
V. Kumar Werner J. Reinartz Instructors Presentation Slides
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Copyright Dr. V. Kumar, 2005
Chapter 11
Campaign Management
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Topics Discussed
Campaign Management Process Campaign Planning and Development Campaign Execution Analysis & Control Campaign Feedback
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Campaign
A series of interconnected promotional efforts designed to achieve precise marketing goals Composed of one or more promotions, each of which is an initiative or a device designed to attract the customers interest Aimed at prospects or existing customers Usually undertaken within a defined timeframe
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Campaign Management Stages
Planning:
Strategic process by which decisions are taken Definition of the purposes and objectives of the campaign
Development:
Tactical process that takes care of creating the offer, choosing the creating support and design, choosing the media and selecting the customer names
Execution:
Operational process of running the campaign in the media chosen and controlling all related aspects
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Analysis: [Link]
Campaign Management Process
Campaign Management
Campaign Planning & Development Setting objectives & Strategies Identifying customer segments Developing communication strategy Developing the offer Campaign Budget Testing
Campaign Execution Implementation & Coordination Monitoring & fine-tuning
Analysis & Control Measuring campaign results Response Analysis Profile Analysis
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Campaign Planning and Development
Setting objectives and strategies
Categories:
Market penetration (increase usage or market share) Market extension (find new user groups or enter new segments) Product development (new products or services) Diversification (find new markets and products, discover new strategies)
Examination of different marketing strategies in place:
Product strategy Pricing strategy Distribution strategy Promotion strategy
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Defining the Campaign Strategy
Who to target?
Retention strategy: focusing on existing customers Acquisition strategy: concentrating on getting new customers Mixed strategy between retention-acquisition: targeting existing and new customers at the same time Ideally the company should target its most profitable customers (often done through LTV and/or RFM analysis)
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Retention Strategy
Develop loyalty from the existing customers, via a strong relationship or via superior quality or service Develop tailor made products for the needs of existing customer profiles Sell additional products to existing customers (cross-selling) Sell a superior product (with more features or additional services) to customers who already use similar products (up-selling) Merchandise different brands from different categories to the same customer (cross-merchandising)
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Customer Acquisition Strategy
If company wants to sell the same product to new customers: target prospects based on the profile and behavior model of existing customers If company wants to offer different products to new customers: develop new markets
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Customer Retention and Acquisition Strategies
Allocate resources between existing and new customers
Retention Strategy:
Keep existing customers Market decisions: -Segment your customers by lifetime value -Retain your best customers -Develop one-to-one marketing Product/Service decisions: -Develop relationship marketing -Retain your clients with superior quality service -Develop tailor-made products -Cross-sell and up-sell -Cross-merchandise
Acquisition Strategy:
Attract new customers Market decisions: -Target the customers based on the model of existing customers -Develop new markets Product decisions: -Highlight your price/ product offer -Have a clear positioning on the market -Develop attractive branding -Give incentives to add initial value to the new customer
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Identifying Customer Segments
Customer segments: Homogenous groups of individuals that have similar tastes, want and needs with respect to the companys products or services Groups: Existing customers, prospects and defectors Identification by: Purchase behavior
Recorded in the CRM database Allows the marketer to segment by product need and by Life Time Value
Profile data
Relate the individual customer to his or her response to past campaigns Allows implementation of a ROI-driven marketing Identifies tastes, needs and preferences of customer Can be used to target new customers accurately
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Developing the Communication Strategy
Marketing communications (marcom): Targeted interactions between company and its customers and prospects, using one or more media Can use a single approach (e.g. a direct mail) or combine several approaches (e.g. direct mail with advertising in television, radio and newspapers) Integrated marketing communications (IMC): management and organization of all marketing communication tools (media, messages, promotions and channels) CRM database system: stores information about customer and prospect preferences, allows firm to focus marketing activities toward specific targets - effective use of IMC
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Communication Strategies
Strategy Generic strategy Pre-emptive strategy Unique selling proposition (USP) Brand image strategy Resonance Strategy Affective or emotional strategy Informational strategy Push Promotional strategy Pull promotional strategy Description No distinction between brands. Emphasis on category need rather than brand awareness (example: Promotions for a product category) A generic claim is made about the superiority of the companys brand Emphasizes superiority of the brand based on a unique feature or benefit. Relies on development of mental or psychological associations through the use of signs, symbols and images. Attempts to recall events or feelings by evoking meanings, experiences, thoughts or aspirations that are relevant to target audiences Attempts to invoke involvement and emotion, with a powerful message. Based on the view that an important element of the creative theme is to convey info Focus a promotional effort in manufacturers of goods and services to encourage the trade channel members to stock, promote and sell its products Focus in encouraging end customers and consumers to demand goods and services
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Communication Strategies (contd.)
Positioning strategiesPositioning by attribute, product Brand is perceived to be better than others in characteristic or consumer features emphasized by Marketing benefit communications Positioning by price/quality Positioning can be sought in high price/high quality, prestige positions, low price/acceptable quality positions Segmentation and targeting can be carried out based on usage occasion Focuses on the requirements of target customers and consumers Rather than competing with another brand, a brand or product category might be positioned against another product category. The competitive focus is placed on substitutes
Positioning by use or application Positioning by product user Positioning with respect to product category
Positioning against a competitorBrands promoted with understanding of relative competitive position for the target audience Cultural positioning Positioning by cultural reference, where the brand is clearly associated with a particular culture, country, religion, ethnic group or sense of heritage or tradition
Source: Pickton David, Broderick Amanda, Integrated Marketing Communications, Financial Times/Prentice-Hall, 2001
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Retention and Acquisition Media
Retention Media
Direct Mail: Mailings: Single-product Multi-product Miscellaneous Birthday cards Thank-you notes Invitations TV:
Acquisition Media
Direct response TV (DRTV) TV spots Home shopping channels Digital TV
Enclosures:
Radio:
- Statements - Parcels Telemarketing: - Outbound - Inbound Catalogues Newspapers / bulletins
- Direct response radio (DRR) - Radio spots Telemarketing: - Outbound - Inbound Print Media : - Press / newspapers - Magazines - Insert Direct mail : - Mailings - Inserts Internet Exhibitions / field marketing
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Minicase: Pro-Mark- Example of Media-mix for an Acquisition and Retention Strategy
$10-million drumstick maker in Houston; developed database with info. on end-users by pursuing print media strategy in different specialized magazines Advertising/marketing campaign strategies: Recruiting test-marketers:
Ad offering free product samples in return for customer feedback Respondents' names entered into a database, each received a catalog with sample Achieved 100% response rate
Profiling end users
Ran a simple black-and-white ad asking readers to nominate them to be selected as the "Not Yet Famous Drummer Contest doubled Pro-Mark's database of names.
Promoting new products
To promote new autographed drumsticks, coupon allowing readers to buy them for $5 and enter a contest to win a chance to meet Abbruzzese in person
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Developing the Offer
Offering the customer some kind of incentive that will induce him/her to buy or to ask the company for more information Ranges from a free product sample to price-related incentives or an item providing information on the firm Objectives should be to attract new customers or members, obtain repeated business from existing customers, reactivate lapsed customers, produce sales leads or acquire new customers Record estimate of campaign costs and profitability in the CRM system used as a model to fine-tune the campaign results
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Developing the Offer (contd.)
Questions on campaign costs and profitability:
What is the product positioning? What is the price? What is the length of commitment? What are the payment terms? What are the risk reduction mechanisms? How much can they afford to spend on the incentive? Which promotion type should be used as an incentive? What should be the promotional package? Which promotional media should be used? Does it involve one-stage or several stages?
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Offer Options
Price incentives Payment options You have been specially chosen Premiums Samples Free trial Automatic shipment Member gets member Early bird offer Contests and sweepstakes Multiple discount offers Multiple product offer Deluxe edition Bounce-back Money back guarantee
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Campaign Budget Calculation: Methods
Pre-set Budgeting
Determine a given years marketing expenditure on the basis of what they spent the year before Advantages:
Follow a more or less steady expenditure flow
Disadvantages:
Last years sales not considered, marketing considered as an expense rather than an investment to boost sales
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Budget Calculation
Budgeting for an allowable marketing cost (AMC)
Determine the amount that can be spent on campaign marketing activities,
while preserving the required profit margin
Potential expenditure is given priority according to its forecast for return on
investment
Obtained by subtracting the costs (cost of goods + distribution costs) and
the required profit margin from the total sales value
Advantages: No pre-set limit to the campaign budget unless a constraint of cash-flow is
imposed, the company can controls costs
Disadvantages: Many activities are hard to accurately forecast and some activities mayV. Kumar, 2005 [Link] Copyright Dr. not
Budget Calculation Budgeting with the competitive parity method
Equating budget allocation with those of competitors
Advantages: Emphasis is on competitor intelligence
Disadvantages:
Very difficult to be precise as to who the competitors are and what are
their relative sizes
Different marketing communication strategies for market leaders and for market followers and budgeting based on parity may not work
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Budget Calculation
Budgeting with the objective and task method
Determining marketing objectives and the marketing communications tasks needed to achieve them Budget set by calculating costs of the communication tasks
Advantages:
Resources expended are limited to the objectives
Disadvantages:
Implementation difficult because it is not always easy to define the objectives and to quantify their implementation costs Assumes that the relationship between objectives and tasks is well known and understood
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Budget Calculation
Percentage of sales method
Fixed percentage of turnover allocated to marketing communications Marketing communication expenditure directly linked to sales level To determine the exact percentage that should be allocated, the company looks at competitor allocations and industry averages To define the turnover the company can look at historic sales
Advantages:
Incorporates a series of alternatives and allocates costs to the objectives
Disadvantages
Difficult to determine the percentage of sales that must be allocated
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Budgeting with Key Performance Indicators
Performance Measure Cost per thousand (CPM) Cost per response (CPR) Cost per enquiry (CPE) Cost per sale (CPS) Formula CPM = (Total promotion expense / Total quantity) x 1000 CPR = (Total promotion expense / number of responses) CPE = (Total promotion expense / total orders) CPS = [Total promotion expense / (total orders- Returns and bad debts)] Definition Relates total cost of promotion with quantity produced. Ratio of total campaign costs to number of responses obtained Ratio of total campaign costs to total enquiries Ratio of total costs to enquiries that were converted into sales, net of returns and bad debts Calculated by comparing the number of buyers with number of responders to the campaign Ratio of sales revenue to the campaign cost
Conversion rate (CR)
CR (%) = (number of buyers / number of responders) x 100
Return on Investment (ROI) [Link]
ROI = Sales Revenue / Total promotion expense
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Key Performance Indicators for an Email Campaign
Customer Acquisition Direct Mail to rented list CPM (cost per thousand) Production Media Delivery Total Click through rate Purchase Rate Cost per sale $462 $118 $270 $850 N/A 1.2% $71 N/A $15 $1 $16 0.8% 2.0% $100 N/A $200 N/A* $200 3.5% 2.0% $286 $462 N/A $270 $686 N/A 3.9% $18 N/A N/A $5 $5 10% 2.5% $2 Banner advertising Email to rented list Customer Retention Direct mail to house list Email to house list
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Budget Calculation
Lifetime Value
Allows the company to compare returns on alternative marketing expenditures Allows comparison of return on expenditure from obtaining business from existing customers or from new ones
Advantages
Using CRM database information allows the company to predict cost of the campaign more accurately Allocates resources between strategies because it allows comparison between the returns of alternative marketing campaigns
Disadvantages
Difficult to keep track of customer values because most companies lack transactional data from its customers
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Testing
Conducting a comparison between different ways of proceeding with a campaign Test individual campaign elements, other elements remaining constant, and measure the resultant change in the performance of the campaign Benefits of testing
Shows real behavior, as it provides a (close to) real environment in which behavior is validated Augments and validates research Stimulates creativity Protects the companys greatest asset (the customers): by using only small samples with each test can give customers the proven offer Minimizes financial risk and avoids costly errors
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Variables for Testing
Key variable: the target audience - in the form of a list of targeted customers and prospects Offer variables - prices, incentives, proposition The format - physical shape, the feel, and the size The creative element - the appeal, the tone, and the message The media and/or the timing
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Performance Measures Tested to Predict Campaign Results
Response to the campaign, in percentage
The number of responses obtained divided by the total number of customers selected will give the response rate, in percentage Response rate serves as an indicator of the success that the particular campaign being tested can achieve
Campaign profitability
Performance results allows an estimate for the revenues of the real campaign Total campaign costs (expenses of preparing the campaign, testing costs plus cost of running the campaign) deducted from the revenues, gives a prediction for the profitability of the campaign
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Testing in Different Media
Direct Mail
Direct marketer controls every aspect of the campaign, including the timing and the budget Testing of all elements possible
Telemarketing
In one call session, promotion of a particular product or service,
testing a different script or promotion, etc possible Press and Inserts: not as easy and inexpensive as others
Split-run testing (different versions in different magazines) A/B splits (alternative copies in same publications) Cross-over test (different elements changed in different messages and rerun with same audience) [Link] Copyright Dr. V. Kumar, 2005
Potential Problems in Testing
Performing several tests with the same set of customers Limited time validity: since customer preferences change over time, conclusions drawn from tests often short-lived Testing the same things all over again Optimizing a particular campaign driving the testing rather than having a successful marketing program
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Campaign Execution
Operational process by which a campaign is implemented Implementation and coordination
The campaign program The campaign schedule The activity schedule
Monitoring and fine-tuning
Revision of planning based on enquiry or orders performance alone. Adjustment of the media selection Undertaking corrective action if the campaign included a first sequence
of creative and offer testing
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Causes of Campaign Failures
When marketing planning is undertaken at a functional level and does not integrate with other functional areas of the company Separating the responsibilities of operational marketing and strategic marketing planning, leading to a divergence of short and long term objectives Concern over short-term results at the operational level will make the company less competitive in the long term Top management not taking an active role in marketing planning If the degree of formalization of campaign management is not adapted to the diversity of operations within the company and its size
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Analysis and Control
Evaluates campaign results in light of original objectives and determines campaign level of success or failure Measuring campaign results Comparing the CPM, CPS, ROI, and the CR with the budgeted KIP Back-end performance analysis
Direct mailing: statement of profit or loss for the campaign promotion For a loyalty program: allowable marketing cost and break-even Contribution: Campaign costs deducted from the gross margin and resulting value divided by the number of new customers New customer lifetime value and attrition rate
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Analysis and Control (contd.)
Response analysis
Calculates the campaign results up-to-date, projects its final results, as responses, inquiries and leads, and analyzes these results Can be performed with customer and market segments, product lines, campaigns, offers and promotions, media or advertising agencies Responses recorded in CRM database should be summarized by time, i.e., by arrival date Results can be analyzed as soon as the first campaign responses are known and eventually can correct the campaign progression
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Profile Analysis
Used to define and compare the profile of campaign responders with the actual profile of the companys customers and prospects Allows marketers to verify if the initial targeted profile actually corresponds with the responders profiles, i.e., if the customer segments were well targeted Should be performed at different stages of the campaign Considers the input (generally geographic, demographic or psychographic) and clusters names into groups with similar tastes and preferences Statistical techniques as automatic interaction detection (AID) and chisquare automatic interaction detection (CHAID) also used in analysis
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Campaign Feedback
Record all relevant data about campaign planning, implementation and results Model relationships between data gathered, the controllable variables and campaign results Apply this knowledge to future campaigns
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Summary
A successful campaign management process comprises of planning, development, execution and analysis When pursuing a customer retention strategy, ideally the company should target its most profitable customers (via LTV and/or RFM analyses) The CRM database plays a central role in customer segmentation process by providing information on customer behaviors and profiles, channel preferences and brand awareness Making a campaign budget should be a balance between measurement, financial calculations, competitive analysis and good judgment Testing can accurately predict performance measures like response to the campaign in percentage and campaign profitability
[Link] Copyright Dr. V. Kumar, 2005 Campaign analysis can be done using campaign key performance indicators, by using